Execution of shares in Ghana: A Practitioner’s Guide

By: Reginald Nii Odoi[1]

ABSTRACT

In Ghana, shares in a body corporate are amenable to processes of execution. Shares constitute an interest of a shareholder in a company measured by a sum of money, for the purpose of liability in the first place, and secondly consisting of a series of mutual covenants entered into by all shareholders. This Article focuses on the execution of shares in Ghana by recounting the process involved. The paper goes further to consider, as a matter of importance, the legal effect of an execution of shares amidst a supposed restriction on the transferability of shares contained in the constitution of a Company as made allowable by the Companies Act of Ghana. This Article applies an analytical and descriptive approach in order to sift out the roadmap for execution of shares in a lawful manner as contained in the laws of Ghana as well as considering the legal effect of same with the view to making recommendations where necessary.

“A writ of execution is an authorization to an executive officer, issued from a court in which a final judgment has been rendered, for the purpose of carrying such judgment into force and effect. It is founded upon the judgment, must generally be conformed to it in every respect, and the Plaintiff is always entitled to it to obtain a satisfaction of his claim, unless his right has been suspended by proceedings in the nature of an appeal or by his own agreement.”[2]

1.0       INTRODUCTION

            Execution is generally the process of enforcement of a judgment or order of a competent Court by a party in whose favor such judgment or order was made. It is the act of getting an officer of the Court, i.e. the Registrar or Bailiff acting under the rules,[3] to take possession of a property of a losing party to a legal action or suit, sell it and use the proceeds in satisfaction of the judgment or order. It is normally done at the instance of the victorious party to the action without which such judgment or order in his favor would be fruitless.

            Generally, under Ghanaian law, a judgment does not become effective on the day of pronouncement. A judgment creditor (i.e. the winning party) is mandated to file and serve an entry of judgment on the execution debtor (i.e. losing party) if he is to have any first chance, if at all, at realizing the fruits of the judgment or order.[4] Thereafter, the execution process is commenced by means of the execution creditor issuing execution against the execution debtor. This necessarily involves the filing of Court processes for execution and enforcement.

            There are indeed several modes of execution which include writs of fieri facias, sequestration, possession and delivery, garnishee, charging and stop orders, committal, etc… In recent times, the Supreme Court of Ghana re-emphasized the fact that shares in a body corporate are amenable to processes of execution. In the case of Martin Alamisi Amidu v The Attorney General, Waterville Holdings (BVI) Limited and Alfred Agbesi Woyome, [5] the Supreme Court constituted by a Single Justice, Benin JSC, ordered that a temporary charge be placed on the shares of the Judgment Debtor Mr. Alfred Agbesi Woyome in companies in which he is a shareholder. The order requested his appearance in order to show cause why the order should not be made absolute.

            This Article would focus on the execution of shares under Ghanaian law by recounting the process involved. The paper would go further to consider as a matter of importance the legal effect of an execution of shares amidst a supposed restriction on the transferability of shares contained in the constitution of a Company as made allowable by the Companies Act[6]. It would involve an analytical and descriptive approach in order to sift out the legal roadmap for execution of shares in a lawful manner as contained in the laws of Ghana as well as considering the legal effect of same with the view to making recommendations where necessary.

2.0       LEGAL NATURE OF SHARES

            A Share is defined as “an interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se… A share is not a sum of money … but is an interest measured by a sum of money and made up of various rights contained in the contract including the right to a sum of money of a more or less amount.”[7]

            Thus, the juridical nature of shares is that shareholders are not regarded as having equitable interests in the Company’s assets. They are not in the eyes of the law part owners of the undertaking. They fundamentally share certain rights and privileges in respect of dividends, return of capital on a winding up, voting and the like.Section 2 of the First Schedule of the Companies Act defines a share to mean “the interests of members of a body corporate who are entitled to share in the capital or income of such body corporate.”

            A shareholder is thus not deemed a creditor of the Company in which (s)he holds shares. The financial interest in the Company, as explained above, is in the prospects of future dividends and distributions upon winding up thus not necessarily giving the shareholder any form of direct financial or legal interest in the property of the Company.Thus, the interest of a shareholder in the Company and his or her right to uphold the constitution of the Company distinguishes a shareholder from a debenture-holder. The holder of a debenture has lent money to the Company so (s)he, as well as a shareholder, has provided money for the Company’s operations. A debenture-holder’s rights are, however, restricted to the remedies given to him by his contract of loan with the Company. (S)he has no interest in the Company.

            In Ghana, unlike elsewhere, shares issued are of no-par value,[8] meaning these shares do not necessarily have a particular value assigned to them in the constitution of the Company.Generally, in Ghana, the power to issue shares is the reserve of the directors of the Company as part of their powers to manage the Company’s business and to exercise all of the Company’s powers.[9] These shares can only be issued for valuable consideration meaning under the law in Ghana there cannot be gratuitous or gifted shares.[10] In the absence of any agreement to the contrary, shares must be issued for cash. In an instance where an agreement to accept non-cash consideration is in place, the agreement covering the payment should be filed at the Companies Registry and should indicate the value of the consideration.[11]

            Under the Act, there is generally a presumption that all shares rank equally in all respects.[12] Thus it is believed that all shares confer the same rights and impose the same liabilities.For many years it was the case that in the absence of express provisions in the constitution of the Company, the continued equality of all shares was a fundamental condition which could not be abrogated by an alteration of the constitution so as to allow the issue of shares preferential to those already issued. This idea was however destroyed in the case of Andrews v Gas Meter Co.[13] This case established that in the absence of a prohibition in the memorandum, the constitution could be altered so as to authorize such an issue.

            Thus, under Ghanaian law, the constitution of the Company may provide for different classes of shares by attaching to certain shares preferred, deferred or other special rights or restrictions, whether regarding dividend, voting, repayment or otherwise.[14]This thus makes there two (2) main classes of shares in Ghana namely ordinary shares and preference shares.[15]

Generally, preference shares do not entitle the holder of such shares any right to participate beyond a specified amount in any distribution whether by way of dividend, or on redemption, in a winding up or otherwise.[16] On the other hand, ordinary shares bear the greatest risk and also possess the potential to reap the greatest rewards. The holders of these shares obtain the residual distributable funds after the satisfaction of the requirements of preference shareholders. They generally have the right to vote at every general meeting of the Company.

It must be noted that shares as part of their juridical nature as explained above are classified as property and thus can be the subject of an execution process in a Court action.

3.0       EXECUTION OF SHARES

            As explained previously, a judgment does not become effective on the day of pronouncement. A judgment creditor (i.e. the winning party) is mandated to file and serve an entry of judgment on the execution debtor (i.e. losing party) if he is to have any first chance, if at all, at realizing the fruits of the judgment or order. Once this is done, execution is commenced against the judgment debtor through the filing of the necessary processes in Court.

            One of the commonest forms of execution for the realization of judgment debts arising from a valid judgment is by means of the writ of fieri facias (fi fa). This involves the attachment of the property of the judgment debtor.[17] This property when attached is sold, so much of which satisfy the judgment debt and costs of execution plus interest from the date of the judgment.[18] Once the judgment debt including costs and interests awarded and the expenses of execution are realized, any sale in the execution must stop.[19]

            Generally, all properties owned by the execution debtor, including movables in possession[20], money or negotiable instrument,[21] any movable property in which the judgment debtor has interest, whether subject to a lien or third party right to immediate possession[22], shares in a body corporate,[23] legal or equitable interest in immovable property[24] or property held in trust for the execution debtor[25] may be attached and sold in satisfaction of a judgment debt.

For the purpose of this Article, emphasis would be laid only on execution of shares in a body corporate.

Practically, a writ of fi fa is put into force by attaching, seizing and removing the property from the control of the judgment debtor and placing it in custodia legis for the benefit of the execution creditor although title would not vest in the execution creditor.[26] Once this is effected, the writ by nature prohibits the alienation, sale, gift or otherwise of the said property without Court order. Any payment of dividend or shares to the judgment debtor during the pendency of the attachment would be null and void, and the person making such payment would be liable for contempt of Court.[27]

            The shares in the body corporate may be seized by serving on the manager, secretary or proper officer of the Company[28] a written order signed by the Registrar prohibiting the holder from transferring them or receiving dividends and prohibiting the manager, secretary or other proper officer from making any such payment until further order.[29] Once the execution is levied by attachment or seizure, any alienation without leave of the Court or payment of any debt, dividends, or shares to the judgment debtor would be invalid, and the person making such alienation or payment liable to committal for contempt of Court.[30]

            A Court, during the pendency of the execution, may direct that part or a sufficient part of the money levied be paid over to the execution creditor[31] or so much of the property levied as may be necessary for the satisfaction of the judgment be sold and the proceeds or a sufficient part paid to the execution creditor.[32] While execution is on-going, the Registrar of the Court may receive payment of the judgment debt and give a discharge.[33] Upon payment of the judgment debt to the Registrar or into Court or tender thereof, the execution proceedings must be stayed and the Registrar must withdraw from possession.[34] Once there is a failure to pay the judgment debt, the property must be put on sale and not handed over to the execution creditor.

            After the shares are seized or attached, the next step is to proceed into sale. The sale is made under the express direction of the Registrar and is conducted in accordance with such orders as the Court may make on the application of any party.[35] Unless the Court directs otherwise, such sale is made by means of a public auction[36] through the leadership of a licensed auctioneer and in accordance with the provisions of the Auctions Sales Act.[37]

            In practical terms, the auctioneer is nominated by the judgment creditor and appointed by the Registrar after which he acts as a bailee for reward of the property in custodia legis whilst exercising ordinary care and diligence, and in this case, in keeping the shares that have been seized and entrusted for sale.[38] The auctioneer must then put up the shares for auction and take reasonable steps to obtain a proper price.[39] The auctioneer must be paid remuneration which must not exceed seven (7) per centum of the gross proceeds of the sale[40] for which the auctioneer may exercise a lien on the proceeds of the sale.[41] In a situation where the execution is called off as a result of the judgment debtor paying up the debt, the auctioneer’s remuneration would be determined on the basis of quantum meruit.[42]

            The auction sale must not take place except after a seven (7) days’ notice of the sale of the shares has been given. This however can be undone by the written consent and agreement of the judgment debtor in writing.[43] The said notice must be given in the town or place of the sale[44] with copies exhibited conspicuously exhibited for at least two (2) days at not less than three (3) public places in the district.[45] Additionally, it must be ensured that notice of the sale is given on the day of the sale through the beating of a drum, gong-gong or such other means of communication as may be appropriate[46] in the town or place of the sale, and if the sale is to take place in any other town or place the notices shall be made there also. This notice is of much relevance since it brings the sale to the notice of whoever may be the true owner and also draws as many interested bidders as possible to the sale.[47]

            Lastly, it must be ensured that the sale of the shares be conducted at a reserved price determined by the Court[48] and any sale would not take effect where the highest bid falls below the reserved price. Once no application is made to set aside the sale, it becomes absolute at the expiration of a period of twenty-one (21) days[49], thereafter the Court would not countenance any application to set aside the sale.[50]  In the case where an application to set aside the sale is filed, the Court would have to look into it in order to determine whether in law and in fact the sale ought to be set aside. Whenever the Court dismisses an application, it would make consequential orders confirming the sale[51].  

            Once the sale is effected, the Court would on the application of the purchaser make an order prohibiting the registered owner from transferring them or dividends received to any other person other than the purchaser. The Court may also restrain the manager, secretary or other proper officer of the body corporate from permitting any transfer or payment to any other person other than the purchaser.[52]

4.0       RESTRICTIONS ON TRANSFERABILITY OF SHARES

            It must be stated that in Ghana, generally, shares in a limited liability Company incorporated under the Companies Act are freely transferrable by statute without any need for authority or permission to be stated in the Company’s constitution[53]. However, of great importance to this Article is the question which may arise when the Company’s constitution imposes restrictions on the freedom of transferability of its shares. In most instances, the directors of the Company are empowered to refuse to register transfers[54] and frequently will be accompanied by provisions affording the other shareholders of the Company rights of pre-emption, first refusal or even compulsory acquisition. These provisions tend to restrict transfers especially to non-members or in a larger context to dispositions or sale of any type.

            Thus, in such case, the constitution specifies that the directors are empowered to refuse to register the transfer of shares, howsoever, or that the pre-emption provisions will apply strictly on any purported transfer or both and in fact any entries in the register of members are acts of the Company which may only be made with the approval of the directors or of all of the members.[55] Where the constitution confers a discretion on directors with regard to the acceptance of transfers, the discretion must be exercised judiciously since this power is done as part of the fiduciary duties of the director.

            The onus lies on the other party to prove that it was not exercised judiciously and that the director acted bona fide.[56] Most at times the constitution would empower the directors to refuse to register based on certain specific grounds mostly that the sale was not done by taking cognizance of the existing shareholders’ rights of pre-emption or first refusal. If it is done on other grounds, the Court may intervene.[57]

            With respect to the restrictions relating to pre-emptive rights or rights of first refusal, the basic principle is that shareholders should be able to protect their proportion of the total equity by having the opportunity to acquire or purchase any shares that are being transferred or sold. The main reason for this includes the fact that shareholders do not want to easily allow their influence in the Company to reduce as a result of holding a relatively small number of shares. Thus, this right of pre-emption or first refusal operate as a potential limit on the freedom of the directors or a shareholder to effect a shift in the balance of control in the Company.     It must be noted that this is of much importance since in Ghana,[58] a transfer of the legal title to shares in any Company needs to be registered in the register of members of the Company followed by an issue of share certificates in order to be legally effective. Thus, by law, if a person is named in the register of members of a Company as the owner of a share in the Company, then the Company is entitled to treat that person as the only person interested in the shares and to ignore the claims of anyone who is not named on the register even if made aware of those claims.[59]

            The question of importance then is that, “what would be the effect of a sale of shares through an execution process in a Court of law amidst the prevalence of such restrictive provisions in the constitution of the company?”The writer argues that considering the discussion above and in light of the current state of the law in Ghana, the provisions of the statute and the constitution of the Company must be adhered to strictly during the execution process.

            It is argued then, by the writer, that in such an instance, the legal and beneficial interest in the shares may not be transferred without compliance with the above provisions.[60] The Court is a Court of law and must respect the provisions of the Companies Act and the constitution which are of public notice and which could have been obtained from the Registrar of Companies and perused thoroughly before the sale took place to ensure true compliance.

            However, others may argue that once the specific wording of the provisions of the constitution do not specifically and explicitly refer to the non-transferability of both the legal and equitable title in the case of non-compliance with the provisions of the constitution, then it would be unfair to say that both the legal and beneficial interest in the shares may not be transferred without compliance with the provisions of the constitution. Such persons argue that there should be the possibility of separating the legal and beneficial interest. It is submitted that the legal ownership is recognized and distinguished from equitable ownership of shares in much the same way as a legal estate in land is distinguishable from equitable interests therein.

5.0       POSITION OF THE PURCHASER IN BREACH OF A TRANSFER PROVISION IN THE CONSTITUTION OF THE COMPANY

            One must take cognizance of the fact that if the constitution of the Company and probably a shareholders’ agreement which is carefully drafted specifically refers to both the legal and equitable interest in shares, they will also provide clearly that if a transfer is made in breach of the relevant restriction, then the transferor will be deemed to have served a transfer notice. In that case, this would trigger the pre-emption procedures and prevent the transfer arising out of the execution process to be registered. In such a case the directors of the Company in line with the Companies Act and the constitution of the Company would be under a duty to refuse to register the transfer in breach of the provisions of the constitution of the Company[61].

            However, in the absence of clear provisions in the constitution specifically mentioning the prohibition affecting both the legal and equitable interests in the shares, it is submitted that a purchaser who buys the shares through the execution process though in breach of the provisions of the constitution of the Company acquires an equitable title to the shares if he has paid the price. The question then becomes one of competing interests.

            It is argued by some writers that, until the purchaser is registered as the shareholder of those shares in the register of members or if he has notice of the breach, the existing shareholders can sue to have the register rectified. One must be minded of the fact that once the pre-emption provisions or right of first refusal are contained in the constitution of the Company, the purchaser would be deemed to have constructive notice of them thus improving the claim of the existing shareholders for rectification but because of the doctrine of privity they will not be able to sue the purchaser on the basis of the constitution.

            It must be further noted that in Ghana, once a person is deemed to have an interest in shares whatsoever, such person would be deemed a beneficiary and can enforce his right under the law.[62] The said provision in the Companies Act[63] provides that, “a person claiming to be interested in any shares or debentures or the dividends or interest thereon may protect his interest by serving on the company concerned copies of a notice and affidavit in accordance with the High Court (Civil Procedure) Rules, 2004 (C.I. 47).”

            The provision further provides that[64], “the company shall enter on the register of members or debenture holders, as the case may be, the fact that such notice has been served and shall not register any transfer or make any payment or return in respect of the shares or debentures contrary to the terms of the notice until the expiration of due notice to the claimant in accordance with the provisions of that Order.”

            The law thus makes it mandatory that any such beneficial interest holder be protected to the extent that he be compensated where the Company defaults in terms of protecting his interest to his detriment thus causing injury or loss.[65]

6.0       CONCLUSION

            This Article discusses the process of execution of shares in Ghana vis-à-vis the possibility of such process being hindered by an express restriction in the constitution of a private company. It is clear as seen from the above exposition that a problem of ownership arises where the constitution of the Company places a restriction on the free transfer of shares in a Company. This restriction applies to transfers arising as a result of a judicial execution process.

            It is advocated that during such execution process, the constitution of the Company be reviewed so as to ensure that the process is conducted in accordance with the provisions of the constitution of the Company especially with respect to pre-emptive rights and rights of first refusal in favor of existing shareholders.

            Similarly, it is advised that lawyers in drafting of such provisions in the constitution do so carefully and with much precision specifying the detailed rules relating to the sale and acquisition of Company shares under any circumstance especially through the judicial execution process. The constitution must also specifically prohibit the separation of the legal and equitable interests in shares and by so doing out rightly prohibit the acquisition of any interest once there is a total disregard and non-compliance with the provisions of the constitution of the Company.

            Lastly, it is advocated that parliament re-consider amending the law and introducing robust provisions in the law in order to bring certainty to this issue especially as a result of execution of shares through the judicial process.

[1]The Writer at the time of writing this Article possesses an LLM Degree from Harvard Law School (USA); a Qualifying Certificate in Law from the Ghana School of Law and an LLB Degree (First Class Honors) from Kwame Nkrumah University of Science and Technology (KNUST). He currently is an Attorney at the Civil Division of the Office of the Attorney General in Accra-Ghana.

Email is reginaldodoi0926@gmail.com.

[2] Benjamin J. Shipman, Handbook of Common-Law Pleading page 26 at 50 (Henry Winthrop Ballantine ed., 3d ed. 1923).

[3] Order 44 r 10(1) of the High Court Civil Procedure Rules, 2004 (C.I. 47) and Mensah v Ghana Football Association [1989-90] 1 GLR 1, SC.

[4] Order 41 r 7 of C.I. 47. It must be noted however that the filing of an entry of judgment does not constitute issuing execution. See Amoah v Atta (1925) FC ’23-’25, 241.

[5] Civil Motion J8/102/2017.

[6] Companies Act, 2019 (Act 992).

[7] Farwell J. in Borland’s Trustee v Steel [1901] 1Ch. 279 at 288. Approved by C.A. in Re Paulin [1935] 1 K.B. 26, and by H.L. ibid., sub nom. I.R.C v Crossman [1937] A.C. 26. See also the other definitions canvassed in that case.

[8] See section 43 of the Companies Act.

[9] See section 144(3) of the Companies Act.

[10] See Section 45 of the Companies Act.

[11] Ibid.

[12] See section 54(g) of the Companies Act.

[13] [1897] 1 Ch. 361, C.A.

[14] See section 49 of the Companies Act.

[15] Section 51 of the Companies Act.

[16] See section 51 of the Companies Act.

[17] Order 45 r 1(1) of CI 47.

[18] Order 45 r 1(2) of CI 47.

[19] Wooddye v Cole (1595) Noy 59.

[20] Order 45 r 4(1)(a) of CI 47.

[21] Order 45 r 4(1)(b) of CI 47.

[22] Order 45 r 4(1)(c) of CI 47.

[23] Order 45 r 4(1)(d) of CI 47.

[24] Order 45 r 4(1)(e) of CI 47.

[25] Order 44 r 2(5) of CI 47.

[26] Giles v Grover (1832) 1 C1 & Fin 72 at 97.

[27] Order 45 r 6 of CI 47; Dadzie v Amoako [2003 – 2005] 1 GLR 569, CA.

[28] Order 45 r 5(2) of CI 47.

[29] Order 45 r 4(1)(d) of CI 47.

[30] Order 45 r 6 of CI 47.

[31] Order 45 r 7(a) of CI 47.

[32] Order 45 r 7(b) of CI 47.

[33] Rook v Wilmot (1980) Cro Eliz 209; A-G v Fort (1804) 8 Price 365.

[34] Sarpong v Atta Yaw [1964] GLR 419; Karimu v Ghassoub (1980) CC 104. NB: Though this rule was not repeated in the CI 47, it still stands as good law.

[35] Order 45 r 8(1) of CI 47.

[36] Order 45 r 8(2) of CI 47.

[37] 1989 (PNDCL 230).

[38] Section 25(1) of the Auction Sales Act, 1989 (PNDCL 230).

[39] Tanko v Karami [1989-90] 2 GLR 189, CA.

[40] Section 29(1) of the Auction Sales Act, 1989 (PNDCL 230).

[41] Section 30 of the Auction Sales Act, 1989 (PNDCL 230).

[42] See Warburn v TB Barrett [DC ’21-’25. 152.

[43] Order 45 r 9(1) of CI 47.

[44] Section 12(2)(a) of the Auction Sales Act, 1989 (PNDCL 230).

[45] Section 12(3) of the Auction Sales Act, 1989 (PNDCL 230).

[46] Section 12(4) of the Auction Sales Act, 1989 (PNDCL 230).

[47] Zakari v Nkusum Mart [1992] 2 GLR 1.

[48] Section 16(2) of the Auction Sales Act, 1989 (PNDCL 230).

[49] Order 45 r 11(1) of CI 47.

[50] Zakari v Nkusum Mart [1992] 2 GLR 1.

[51] Order 45 r 11(2) of CI 47.

[52] Order 45 r 12(5) of CI 47.

[53] Section 101 of the Companies Act.

[54] Clause 4(a) of Part 1 of the Second Schedule of the Companies Act.

[55] Re Zinotty Property Ltd [1984] 1 WLR 1249.

[56] Re Smith v Fawcett Ltd [1942] Ch. 304 C.A. at 306.

[57] Re Bede Steam Shipping Co. [1917] 1 Ch. 123. C.A.

[58] Section 33(2) and 35 of the Companies Act.

[59] See section 101(1) of the Companies Act.

[60] See Lyle & Scott Ltd v Scott’s Trustees [1959] AC 763, HL (SC).

[61] Tett v Phoenix Property and Investment Co Ltd [1986] BCLC 149, CA.

[62] Section 103 of the Companies Act.

[63] Section 103(1) of the Companies Act.

[64] Section 103(2) of the Companies Act.

[65] Section 100(3) of the Companies Act.